Wednesday, 23 December 2015

The Court of Justice has now delivered
its judgment in Case
C-333/14 in relation to the lawfulness of the Scottish measure to introduce
minimum alcohol pricing, or MUP for short. Both the Scottish Government and the
Scotch Whisky Association, which brought the legal challenge, have “welcomed the ruling,” although I think that the SWA are probably a
little happier than the Scottish Government as the case returns to the Inner
House of the Court of Session, which had referred it to the CJEU. I’ve
previously written about the AG’s
Opinion and the Court has adopted a very similar approach, but in many ways
the judgment leaves as many questions as it answers. It does appear to give
quite a strong steer to the Court of Session that the CJEU would prefer the
adoption of the “less restrictive” increase in general excise duties instead of
the MUP, but it leaves the final decision on the proportionality of MUP to the
Scottish court.

Is MUP caught by Art 34 TFEU?

Both parties to the dispute had
accepted that MUP pricing was caught by Art 34 TFEU (the ban on measures with
an equivalent effect to quantitative restrictions on imports), but there was
little clarity as to how such a measure breached the prohibition. That at least
has been clarified today. The Court followed the AG’s elegant solution of
evading the complications of categorising a MUP as a “selling arrangement” and
dealing with the matter under the Gourmet International style
analysis, but rather preferring to use the Trailers “market access” test. A
minimum pricing measure restricts access to the UK market as it prevents lower
cost products from other Member States from exploiting that cost advantage in
lower retail prices [32]. As the removal of the benefits of the cost advantage
triggers the market access test there is no need to discuss whether there is
any discrimination inherent within the scheme. This is another example of the
Court preferring the flexibility of the new test to the more traditional Cassis and Keck line of decisions.

The Tricky Balancing Act in Proportionality

The majority of the ruling deals
with the much more difficult question of the potential justification of the
measure on health grounds and whether the restriction is proportionate. At first
instance the Outer House of the Court of Session accepted that the measure
was proportionate as it targeted ‘harmful and hazardous’ drinkers who tended to
consume low price high alcohol products which were most effected by MUP, but in
the CJEU ruling there is a different view taken as to the purpose of the
measure. On the evidence presented to it the CJEU takes the view that MUP has a
“twofold objective” [34], both targeting these “harmful and hazardous”
drinkers, while also reducing general alcohol consumption in the wider
population “albeit only secondarily”. It is this “ambiguity”, as the AG put it,
which I think is at the heart of the problem in the Ruling. If one cannot clearly
define what a measure is designed to achieve it is incredibly hard to come to a
firm conclusion as to whether it is proportionate. The Court did accept, at [38],
that the measure was a real attempt by the Scottish Government to address health
problems within Scotland, but set out that it cannot go beyond what is
necessary in order to protect health. The choice before the CJEU was between
the Scottish Government’s preference for MUP, and the argument that the same
health benefit could be obtained through an increase in the general excise
duties applied to all alcohol products, as preferred by the SWA and the
European Commission. The Court argued that increased taxation could be an
effective heath protection measure, as it is in relation to tobacco, and that
an increase in taxation:

“is
liable to be less restrictive of trade in those products within the European
Union than a measure imposing an MPU. The reason is … that the latter
measure, unlike increased taxation of those products, significantly restricts
the freedom of economic operators to determine their retail selling prices and,
consequently, constitutes a serious obstacle to access to the United Kingdom
market of alcoholic drinks lawfully marketed in Member States other than the
United Kingdom and to the operation of fair competition in that market.”

The contention that an increase
in taxation would be less restrictive of trade, in comparison to MUP, is one of
which I have never been convinced. Taxation affects all products, and MUP would
only affect a limited number; on that simple basis I contend that MUP is
arguably less restrictive in terms of the volume of trade impacted by the
measure. Volume of trade affected has been seen as important in other Art 34
cases, see for example the Sunday
Trading litigation of the 80s, but here the Court refers to this issue much
more explicitly than before. It is not concerned with reducing the volume of
trade impacted, but is much more concerned that the measure does not impact
“fair competition” within the market; even if a greater number of products are affected.
The Court refers to an argument made by the Lord Advocate questioning the
relevance of the Court’s previous cases that dealing with minimum pricing in tobacco
markets. The Court rejects that position, at [45], but I am nervous about simply
reading across from those cases. Those cases centred on the Tobacco
Harmonisation Directives, which were explicitly designed to enhance the single market
integration by using price competition as a driver of integration. The direct
protection of retail price competition is not usually seen so explicitly under
Art 34 TFEU. It appears that the Court is now reading the protection of price
competition into the prohibition. There is also, to my mind, another important
distinction between the health problems associated with tobacco consumption and
the health problems associated with alcohol - different problems will require
different solutions.

The final issue in the
proportionality discussion relates to the vexed question of choosing the least
restrictive of the two measures, and the intrinsically connected question of
the balance between restrictiveness of a measure and its effectiveness at
achieving its aim. Here we return to the “ambiguity” of the purpose of MUP. The
Courts states, at [47]:

“the fact
that increased taxation of alcoholic drinks entails a generalised increase in
the prices of those drinks, affecting both drinkers whose consumption of
alcohol is moderate and those whose consumption is hazardous or harmful, does
not appear, in the light of the twofold objective pursued by the national
legislation at issue in the main proceedings … to lead to the conclusion that
such increased taxation is less effective than the measure chosen”.

The Court appears to suggest that
as taxation can achieve both the general and the specific aim it is as
effective. I find that difficult to follow. One of the main reasons that MUP
was adopted was it was targeted, in that it only impacted on cheap and strong
products and would not have a wider impact on moderate drinkers or on-sales,
which would generally be above the MUP floor. The Court is expressing a
preference for the secondary aim of the measure and effectively side-lining its
primary purpose. It describes this generalised impact as “additional benefits”
[48], but I would argue this is not additional in any valuable sense if it removes
the primary benefit, targeting, from the measure. The Court goes on to the
usual statement that the final decision is, of course, for the referring court,
once it has heard all the evidence and argument, but it is pretty clear where
its preference lies. This preference for one aim over another does not sit well
with the settled position, repeated at [35], that the Member State can decide on
the degree of protection it requires.

On the Article 36 TFEU Derogation

The previous discussion was in
relation to the ‘rule of reason’ within the Art 34 TFEU prohibition, but as
health protection is one of the grounds for derogation in Art 36 TFEU it is
also possible to justify MUP on that basis. The Court discusses Art 36
separately and while the questions are similar the Court appears to adopt a
slightly more relaxed tone. It stresses the same proportionality test as above,
and that it is the Member State’s responsibility to prevent the appropriate
evidence, but also that:

“that
burden of proof cannot extend to creating the requirement that, where the
competent national authorities adopt national legislation imposing a measure
such as the MPU, they must prove, positively, that no other conceivable measure
could enable the legitimate objective pursued to be attained under the same
conditions”.

This appears to give some succour
to the Scottish Government that the ball is now in their court, and that they
must present the best evidence they can to convince the Court of Session. The
alcohol policy evidence, including the Nuffield Report published
yesterday, tends to suggest that there is a good case to be made for MUP. In
that sense there is a still a lot for both sides to play for when the Court of
Session comes back to this issue in 2016.

Conclusions

It is unfortunate that the Court
has followed the reasoning of the AG and the weaknesses that it exhibited. We
now have confirmation that price competition receives protection under Article
34 TFEU, and any attempt by Member States to interfere with the free setting of
prices is likely to be scrutinised as a matter of EU law. The most
disappointing aspect of the ruling is the lack of clarity in the Court’s
discussion of proportionality, it has been described as “Delphic” by some commentators.
I have explained some of my concerns, but the most troubling aspect is the
Court’s apparent willingness to suggest that the Scottish Parliament picked the
“wrong” health aim, and use proportionality analysis to “correct” that mistake.
The Inner House of the Court of Session still has a lot of work to do in unpicking
the Court’s Ruling.

3 comments:

The starting-point was the Court's finding, following the AG, that MUP discriminated against imports (para 32 of the judgment). That coloured the whole case: obviously, non-discriminatory tax increases are preferable in principle.

In addition, question 2 in the order for reference is a leading question: it is based on a rebuttable presumption that tax increases are preferable. The bizarre wording of question 4 also worked against the Scottish Government.

More importantly, the referring court also made various findings of fact that were harmful to the Scottish Government's case. In particular, it seems to have found that, the wealthier they are, the more the Scots drink. That finding was pretty much fatal !

So this case is very much fact-based. Which is why the Irish Government is right not to abandon its plans to introduce MUP until it has considered the matter further

Thanks Peter, feedback much appreciated.It's becoming more clear now that a Member State has to be very careful and balance any political advantage that might be had from claiming a measure can achieve several objectives, against the difficulty they may have defending that multi-purpose measure in a later litigation. A single narrow objective is much easier to defend in relation to proportionality.

well the litigation may drag on further yet. However I thought CoS made right analysis of CJEU judgment. It confirmed it was reasonable indeed to conclude that alternative measures, are not capable of protecting health as effectively as minimum pricing. Also correct to say that when assessing whether or not alternative measures are capable of being less restrictive of trade it is always possible to dig up some evidence which points in the opposite direction. Correct also to say CJEU does not require demonstration by a Member State that no other conceivable measure could protect the public health objective